SOLO - Electrameccanica: I Was Wrong About This EV Small-Cap Stock

2023-03-31 15:22:06 ET

Summary

• Electrameccanica was one of my favorite EV small-cap stocks back in 2021 during the massive electric vehicle stock bubble.
• Things have changed drastically since then as the company has struggled to produce vehicles and experienced too much executive turnover.
• There are better EV stocks to target and it looks like Electrameccanica is no longer a penny stock worth holding.

Electrameccanica (SOLO) was one of my favorite electric car stocks in 2021 that I previously wrote about here in depth.

I was intrigued by the company's revolutionary 3 wheeled vehicle that would give consumers a cheaper and more affordable EV option.

The company had plans to build a factory in Mesa, Arizona and produce the SOLO EV at mass scale to help a much needed transition from ICE vehicles to renewable energy electric cars.

However, the company failed to deliver on its promises and lacked the needed production to boost its revenues. Several CEOs joined and left the company over the past 2 years, signaling a lack of belief in the company's future goals.

Latest Q3 2022 Quarterly Update

Electrameccanica hasn't released its Q4 2022 earnings update yet but I don't expect any big changes from its Q3 2022 numbers.

Q3 2022 revenue was $1.44 million (Up 1,100% YoY) and net losses were $21 million for the quarter.

The company produced 103 vehicles but only delivered 65 for the entire quarter.

Since Q3 2022, Former CEO Kevin Pavlov stepped down as Chief Executive Officer and was replaced by Susan Docherty. She is currently serving as both CEO and interim COO while the company searches for a replacement Chief Operating Officer.

On February 17, 2023, Electrameccanica recalled 428 of its SOLO EVs due to a loss in propulsion.

The company also ended its production relationship with Zongshen and plans to produce SOLO EVs in Mesa, Arizona moving forward. This will help with capital expenditures in the long run but could make it more expensive to produce electric cars in the United States instead of China.

A Fresh Start

To make matters worse, new CEO Susan Docherty posted 2 blog posts ( here and here ) covering major transitions within the company that reduce my overall interest in the stock.

The biggest letdown is her plans to ditch the 3 wheeled SOLO EV in favor of a newer 4 wheeled electric vehicle.

According to her blog post, Docherty said:

We do not believe a three-wheeled autocycle can capture those opportunities, given challenges ranging from its exclusion from government rebates; to the difficulty for consumers of insuring, financing and servicing a three-wheeled vehicle; to consistent customer requests for more functionality.

Beyond the technical issues associated with the recall notice, these barriers and others to broad consumer acceptance of three-wheeled EVs make it impossible for us to profitably manufacture and sell that version of the SOLO. Instead, we believe we can address the large market for a different kind of EV and become profitable if we keep the best features of the SOLO, including terrific styling, easy charging, great handling and small size, while adding a wheel and other customer-requested features.

Source: A Fresh Start Part 2

Adding another wheel seems like a copycat measure to do what everyone else is doing in the electric car industry. These changes would ultimately force Electrameccanica to compete with other EV makers such as Tesla ( TSLA ), Lucid ( LCID ), Rivian ( RIVN ), etc.

Will Electrameccanica Run Out of Cash Soon?

The company does hold $178 million in cash on hand but burns through around $20 million per quarter for operating expenses.

Assuming the company doesn't ramp up production anytime soon, Electrameccanica could survive for just under 2 years until the company files for bankruptcy.

With a $60 million market cap, value investors could argue that SOLO shares are undervalued. SOLO's cash per share is ~$1.29, more than 2x the current stock price.

However, Electrameccanica will most likely burn through its cash on hand to keep the lights on and may need to dilute shareholders in the future or file for bankruptcy.

Risk Factors

The biggest concern right now is a potential delisting from the NASDAQ if SOLO stock price remains under $1 for 30 consecutive trading days.

In cases like this, management will mostly likely perform a reverse stock split to meet NASDAQ price requirements.

This is an extremely bearish signal because it shows the company must reduce its total outstanding shares because so many investors sold the stock.

I Was Wrong about Electrameccanica

I cover many stocks on Seeking Alpha and cannot get them all right 100% of the time. I admit being completely wrong about SOLO stock and bought into its lofty goals instead of the grim reality.

Hopefully, my other EV plays such as Lucid Group will help make up for the losses I suffered holding SOLO stock.

There are better EV plays out there at the moment. I wouldn't touch Electrameccanica stock with a 10 foot pole right now.

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